Citigroup Inc.
Summary:
On the bright side, they do appear to update the program regularly and may be open to significant change in the future. Also, we like that the bonus ranges fall to zero, but shouldn't all or most of them be there for 2007? We look forward to reviewing the changes in 2008 to see what has taken place and also to better review the current compensation levels. Until then…
Analysis:
Losses piled up for the Financial Services Industry in 2007. The sub-prime mortgage disaster combined with the declining economy set off a series of events that has brought even some of the biggest companies to their knees. 2008 is no different, as the decline continues and banks are reporting huge write-downs, delinquency rates, and other losses.
Citigroup is certainly one of those large companies in this industry, hurt tremendously by the domestic economy. After seeing their stock price remain fairly steady at around $50 for about 4 years, Citigroup has seen a drastic fall in stock price at the end of 2007 and now into 2008. The price per share has dropped to as low as $18.
Almost every phase of the business has been hurt. Management has responded by increasing the amount of excess capital to increase flexibility, while focusing on long-term cost-cutting projects. Cost-cutting moves will include the divesting of underperforming units (i.e. investment banking and consumer divisions) and removal of thousands of jobs world-wide. It looks like management has a lot of work to do. Wait a second… where did they all go?
Turnover was substantial in 2007. Many NEOs have left or have switched to different positions, including the resignation of the CEO, Mr. Charles Prince, at the end of the year. Because of all the turnover, the compensation numbers vary more than usual and may not reflect the true compensation program. Therefore we have decided to evaluate the 2006 compensation of now former CEO, Charles Prince, along with four NEOs whose pay appears to be reflective of typical levels.
So… What Are They Paid?
The former CEO made quite a bit of money in 2006. For his salary, he was making the maximum allowable for Citi execs, $1 million. His bonus was extremely high, coming in at $13.2 million. Stock awards were also very high, nearly $14 million worth of shares. Options, on the other hand, were low. Only the 2007 perquisite numbers were listed for the top exec, which were very reasonable, save the $170,000 in airplane usage.
The NEO pay varied a great deal in 2007. Bonuses, for instance, ranged from nothing, to over $14 million! There was a lot of variety in between as well. Stock awards seemed to be the most consistent for all of the NEOs and was a little above average compared to the compensation for other companies studied. However, the company's Proxy statement includes a table showing the difference between stock awarded, and stock reported in the Summary Compensation table. The difference between these two numbers for stock awards varied greatly in some cases, such as the $12.6 million difference between the two amounts for NEO Klein. Option grants ranged from $0 to $1 million in value and perquisites were non-existent.
The executive compensation program at Citigroup is not our favorite. There is a high amount of discretion on the part of the Compensation Committee, which is readily admitted by them. They explain that the use of formulas "could inadvertently encourage undesirable behavior". This may be a reasonable thought, but then why don't they better explain why each exec was given certain amounts? The compensation program also has many elements that are difficult to get a handle on.
Compensation Details:
| CEO | NEO Avg. | |
|---|---|---|
| Base Salary | $1,000,000 | $356,250 |
| Bonus | $13,200,000 | $3,427,500 |
| Stock | $13,765,741 | $3,218,779 |
| Options | $746,607 | $310,943 |
| non-Equity Incentives | $0 | $0 |
Reference Links:
(1) Annual
Proxy Statement
(2) Annual
Report